Shaikan operator Gulf Keystone Petroleum in play

What a week for shareholders in Gulf Keystone Petroleum, which has hoisted the “for sale” sign as it wrestles with the challenges of selling oil in Kurdistan with the necessity of meeting its debt obligations. Shareholders have long speculated about the future of the oil group, which soared in value, migrating from AIM to London’s Main List, after it made a giant oil discovery in the Kurdistan Region of Iraq.

But it has proved easier to find the world-class Shaikan oilfield than to sell its crude as the Kurdistan Regional Government has been locked in dispute with Baghdad over revenue-sharing while payment cycles for crude exports trucked to Turkey have proved erratic.

Earlier this month, Gulf Keystone, which is pumping around 40,000 bpd from the field, was forced to suspend oil exports until a regular payment cycle can be established. It is in dialogue with the Kurdistan Regional Government’s Ministry of Natural Resources to receive the considerable outstanding payments due to the company and in the meantime has restarted supplying its Shaikan oil into the local domestic market in order to generate near-term revenues.

Now, with the company trading significantly below asset value, talks are underway with “a number of parties” about asset sales or complete sale of the company. It has appointed Deutsche Bank and Perella Weinberg Partners as financial advisers as it mulls its options. The Bermuda-registered company isn’t without funds: its cash balance of US$69.3 million was this week boosted by the receipt of US$20.8 million as a pre-payment from a third party buyer for future Shaikan crude oil sales. But the problem is the debt load against a backdrop of low oil prices and erratic payments.

Analysts at SP Angel Corporate Finance were unsurprised that the company was in talks with potential suitors, saying “the only surprise for us is that it has taken this long”. “The Shaikan field alone is world class, and when combined with the others in its portfolio the Company is a regional business in its own right,” said the analysts.

“While the asset’s value is easily north of any double digit per share offer, the price that will be paid will reflect what the acquirer can get away with in the market – successful offers are generally a ~30% premium to the prevailing market price,” said the SP Angel team.

That price was 48.75 pence on Thursday, a fraction of the level shareholders had once hoped for as the company unearthed billions of barrels at Shaikan. This is indeed a world-class field – and Gulf Keystone cannily has material stakes in other major finds in Kurdistan – but the political and security strife has created headwinds that have, ultimately, taken their toll on the company.